Interim construction financing: bridging to building loan.
It happens again and again in everyday life that the requirements for the sufficiency of the actual building finance are not yet fulfilled. Or the home savings contract planned for the project has not yet been allocated.
In order to still be able to take advantage of the opportunity, builders take advantage of interim construction finance.
What does it mean?
What impact does interim construction finance have on the construction project? Prospective builders should also deal with these questions.
Building loan: if the bank doesn’t pay yet
Within the framework of real estate financing, very different framework conditions can be found. The result of this inhomogeneous starting point are quite individual financing options. In practice, it can happen that not all payment conditions for the actual building loan have been met.
A classic example would be the handling of the transfer of ownership. The latter can be lengthy. Sometimes households have also opted for the home savings contract as an important financing instrument – only that it is not yet ready for allocation.
The solution is a bridge loan – interim construction finance. Here, a loan is sufficient from a bank, which is usually not repaid on an ongoing basis, but at the end. The borrower repays the interim construction finance at the end of the term with the actual construction finance.
Interim construction finance – important tips for builders
The interim financing has established itself as a financial aid in the context of real estate loans. Households who want or need to use interim construction financing should be aware of the conditions ahead of them.
As a rule, the interim financing accrues interest over the term (often twelve months to 24 months), but is not repaid. With regard to the loan conditions – especially with regard to the interest rate – the interim construction finance is often worse than a classic construction loan. However, this does not have to be the case.
Ultimately, the framework conditions play a role when considering the interim loan. If the bank grants the loan with a variable borrowing rate, there may be an opportunity for cheaper mortgage lending – if the interest rate falls during the term.
- On the other hand, there is of course a risk of an interest rate adjustment in this connection. This ultimately makes interim construction financing more expensive – which also has an impact on the overall cost framework for the home project.